A roughly $1 billion-plus tax cut won the approval of a Missouri Senate committee Monday on a party-line vote.
The bill, sponsored by Republican Sen. Will Kraus of Lee’s Summit, would lower the top income tax rate to 4.5 percent from 6 percent, cut the corporate tax rate to 4.75 percent from 6.25 percent and create a 50 percent tax deduction for all businesses phased in over five years.
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Kraus originally planned to offset the cost of the cuts by increasing the sales tax from 4 percent to 6 percent, a move that would have generated more than $900 million in additional revenue. But the committee voted to remove that provision from the bill at the suggestion of Sen. Paul LeVota, an Independence Democrat.
LeVota said he feared the increase in sales tax would hurt businesses along the state border. His amendment to remove the increase from the bill was approved unanimously.
“I was of the understanding that Democrats wanted a more balanced approach, and that’s what I was trying to do,” Kraus said. “I’m all about cutting taxes, so I think (LeVota’s) amendment was great.”
Figures provided by Kraus’ office estimated the tax cuts would cost the state $1.1 billion the first year. The phased-in business tax credit will add another $200 million to that price tag when fully phased in, Kraus said.
Critics argue the real price of the tax cuts is closer to $2 billion, or roughly one-fourth of the state’s general revenue budget.
“Instead of spurring economic growth, the tax proposal will severely undermine Missouri’s ability to invest in the very services that make Missouri attractive to business,” said Traci Gleason, director of communications for the liberal policy organization Missouri Budget Project.
The cuts will make Missouri more competitive with Kansas, Kraus said. Last year Kansas Gov. Sam Brownback signed legislation slashing state income taxes and eliminating them entirely for nearly 200,000 businesses. Legislative researchers estimate the Kansas tax cuts could create a budget shortfall of nearly $2.5 billion over the next five years. Brownback is looking to cut the state’s tax rates even further.
Gleason said Missouri can better compete with Kansas and promote long-term economic growth by investing in “strong schools to educate a skilled workforce, efficient transportation networks that allow companies to bring their products to market and safe, stable communities”
Senate President Pro Tem Tom Dempsey, a St. Charles Republican, has said he would prefer a balanced approach to tax cuts that is paid for in some way. He could not be reached immediately for comment on the Kraus legislation.